Antitrust Updatehttps://www.pbwt.com/antitrust-update-blog/
Antitrust Update Blog is a source of insights, information and analysis on criminal and civil antitrust and competition-related issues. Patterson Belknap’s antitrust lawyers represent clients in antitrust litigation and counseling matters, including those related to pricing, marketing, distribution, franchising, and joint ventures and other strategic alliances. We have significant experience with government civil and criminal/cartel investigations, providing the unique perspectives of former top U.S. Department of Justice Antitrust Division lawyers from both the civil and criminal sides.
Fri, 18 Jan 2019 21:47:54 +0000en-UShourly1https://wordpress.org/?v=4.9.7Applicability of State-Action Immunity to Private Partieshttps://www.pbwt.com/antitrust-update-blog/applicability-of-state-action-immunity-to-private-parties/
https://www.pbwt.com/antitrust-update-blog/applicability-of-state-action-immunity-to-private-parties/#respondFri, 18 Jan 2019 00:00:00 +0000https://www.pbwt.com/?post_type=blog-post&p=30446On January 7, 2019, in Green Sols. Recycling, LLC v. Reno Disposal Co., No. 3:16-cv-00334-MMD-CBC, 2019 BL 4611 (D. Nev. Jan. 07, 2019), the District Court for the District of Nevada granted summary judgment on plaintiff’s antitrust claim in favor of defendants Reno Disposal Company, Inc. (“Reno Disposal”), and Waste Management of Nevada, Inc. (“WMON”), on the basis of the doctrine of state-action immunity. The litigation arose out of the City of Reno’s entry into an exclusive franchise agreement with Reno Disposal, which provided Reno Disposal with the exclusive right to collect and dispose of waste and certain recyclable materials. The plaintiff challenged the City of Reno’s authority to grant a monopoly for the collection and disposal of garbage and recyclable materials as an unlawful restraint of trade in violation of Section 1 of the Sherman Act. The defendants argued that they were entitled to summary judgment under the doctrine of state-action immunity.

The doctrine of state-action immunity derives from Parker v. Brown. In Parker, the Supreme Court held that “because ‘nothing in the language of the Sherman Act . . . or in its history’ suggested that Congress intended to restrict the sovereign capacity of the States to regulate their economies, the Act should not be read to bar States from imposing market restraints ‘as an act of government.’” FTC v. Phoebe Putney Health Sys., Inc., 568 U.S. 216, 224, (2013) (quoting Parker v. Brown, 317 U.S. 341, 352 (1943)). Following Parker, the Court recognized that “under certain circumstances, immunity from the federal antitrust laws may [likewise] extend to nonstate actors carrying out the State’s regulatory program.” Id. at 225. Given our “fundamental national values of free enterprise and economic competition,” however, state-action immunity is the exception rather than the rule, and the inquiry is even more exacting when a non-state actor invokes the protection of Parker immunity. Seeid.

Applying these principles, the District of Nevada found that this case presented one of those rare circumstances where private parties are entitled to state-action immunity. The court first concluded that the clear-articulation prong of the Midcal test was met, because the statute at issue expressly authorized anti-competitive conduct by allowing municipalities to displace or limit competition in collection and disposal of waste. Moreover, the court found it foreseeable that the statute would result in a monopoly over the collection and disposal of materials that arguably qualified as waste.

With respect to the second prong, the court emphasized that the active supervision requirement did not apply “when the ‘challenged activity is within a traditional municipal function,’” or “when ‘the actor is a municipality rather than a private party.’” Green Sols. Recycling, LLC, 2019 BL 4611, at *9 (citations omitted). The court reasoned that the “traditional municipal function” exception applied, because waste disposal is “‘both typically and traditionally a local government function.’” Id. (citations omitted). The court likewise concluded that the second exception applied, because the true actor was the City of Reno, rather than Reno Disposal or WMON. The court explained that it was the City of Reno that was engaged in municipal regulation, and that Reno Disposal and WMON “have no authority to set pricing or in any way regulate the collection and disposal of garbage and other waste.” Id. The court held that both exceptions applied and that, accordingly, the defendants did not need to establish active supervision.

While the court’s decision thus makes clear that non-state actors are entitled to state-action immunity only in narrow circumstances, it also illustrates the vitality of this doctrine.

]]>Judge Finds Lack of DOJ Funding No Excuse for Delay in Review of Public Comment to CVS-Aetna Mergerhttps://www.pbwt.com/antitrust-update-blog/judge-finds-lack-of-doj-funding-no-excuse-for-delay-in-review-of-public-comment-to-cvs-aetna-merger/
https://www.pbwt.com/antitrust-update-blog/judge-finds-lack-of-doj-funding-no-excuse-for-delay-in-review-of-public-comment-to-cvs-aetna-merger/#respondFri, 18 Jan 2019 00:00:00 +0000https://www.pbwt.com/?post_type=blog-post&p=30452Though the merger of CVS and Aetna received conditional approval from the DOJ’s Antitrust Division back in October, the road to final approval has been rocky as the court’s exasperation with the parties appears to grow. Last week, Judge Richard J. Leon of the District Court for the District of Columbia ordered the Antitrust Division to respond to public comment on the merger by February 15, 2019—notwithstanding the fact that appropriations to the Antitrust Division lapsed on January 4, leaving the Division without funding.

The Tunney Act requires the court reviewing a consent judgment like the one sought here to consider the impact on competition, the relevant market, and “the public generally.” Judge Leon made clear that this included consideration of all public comments received in response to the merger and DOJ’s conditional approval thereof. The Antitrust Division assured the court in a hearing on December 18 that it would respond to public comments by early February 2019. But on January 8, 2019, the Division informed the court that it “cannot work on its response to public comments…until funding is restored by Congress, …unless otherwise ordered the Court.”

Judge Leon deemed “this pronouncement…surprising,” “[t]o stay the least,” since the Government had previously argued that “slowing implementation of the CVS-Aetna merger could ‘delay any efficiencies that might result from the transaction’ and ‘create uncertainty for customers, employers, and shareholders.’” Interpreting the Government’s status report as a motion to stay, Judge Leon denied it, firmly stating that, “[i]n short, the Government’s internal, political squabble over funding is NO reason to postpone the congressionally mandated evaluation of the Government’s proposal to remedy the antitrust concerns allegedly raised by the merger’s consummation!” He ordered a response to public comments by February 15.

Judge Leon’s blistering message reflected his continued impression that the Antitrust Division is not taking seriously enough the court’s role in reviewing consent judgments. He declared that “the public interest would seem to require more than the indefinite stay of the proceedings the Government is effectively seeking,” particularly given the merger’s $69 billion price tag, and the fact that it involves the acquisition of “the nation’s third-largest health insurance company” by “one of the largest companies in the United States.” Judge Leon “expect[s] the Government attorneys working on this case to roll up their sleeves[ and] respond to the public’s concerns about the CVS-Aetna merger.”

The judge’s latest action underscores two points—first, merger parties cannot assume that the Tunney Act is a mere formality (as we reported last month, Judge Leon previously took the parties to task for assuming the court would “rubber-stamp” the consent judgment). Second, courts typically place a very low priority on the convenience (or paychecks) of attorneys of record when clients will be prejudiced or the public interest disserved by requests for delay—and this is just as true of government attorneys as those in private practice. We’ll continue to cover the progress of the court’s review.

]]>District Judge Criticizes Pace of Aetna – CVS Mergerhttps://www.pbwt.com/antitrust-update-blog/district-judge-criticizes-pace-of-aetna-cvs-merger/
https://www.pbwt.com/antitrust-update-blog/district-judge-criticizes-pace-of-aetna-cvs-merger/#respondWed, 05 Dec 2018 00:00:00 +0000https://www.pbwt.com/?post_type=blog-post&p=30156After two hearings over the last week, Judge Richard J. Leon of the District Court for the District of Columbia seems to have put the brakes on the well-publicized merger between health care giants CVS and Aetna. The merger obtained conditional approval from the DOJ’s Antitrust Division on October 10, 2018, and the parties seemed poised for court approval when they appeared before Judge Leon on November 29, 2018.

Judge Leon had other ideas. The court’s review of consent judgments in antitrust cases is governed by the Tunney Act, which requires the court to determine that the judgment is in the public interest, considering the impact on both competition and on the relevant market and “the public generally.” Judge Leon emphasized at a second hearing, on December 3, that he was not “making an decision about the proposed final judgment or the public interest now.” But he chastised the parties for keeping him “in the dark, kind of like a mushroom.”

The court’s frustration with the parties stemmed from the fact that, with the merger closed, CVS and Aetna planned to begin integrating their operations in short order. According to the court, “that’s where the rubber is going to hit the road,” because “the very practical problem” arises of how the companies can unwind their business in the event that the court rejects the proposed consent judgment on public interest grounds. As a counter-example, the court cited the merger between AT&T and Time Warner, which Judge Leon approved earlier this year and is pending review in the D.C. Circuit. There, Judge Leon noted, the parties completed the merger but did not begin integration, since it will be “easier to unwind it if the companies haven’t been integrated.”

Here, the specific aspect of the merger under review is Aetna’s plan to divest its Medicare Part D prescription drug plans to WellCare. The Antitrust Division’s complaint focused on the potential anticompetitive effects of this divestiture, and last week the Government pointed out that Aetna will bear the risk that the court does not approve the consent judgment.

But Judge Leon’s doubts were not assuaged. He raised a concern that DOJ might have “draft[ed] its complaint so narrowly as to make a mockery of judicial power”—which is not permitted under the D.C. Circuit’s US v. Microsoft precedent. While a court’s Tunney Act review “cannot be interpreted as an authorization for a district judge to assume the role of Attorney General,” the district court nevertheless can refuse to order a consent judgment when the parties “make a mockery” of its authority. Here, because the sales price of the divestitures is $50 to $100 million, which the court noted is only “one-tenth of one percent of this $69 billion deal,” the proposed consent judgment may not meet even the permissive Tunney Act “public interest” standard.

The court sharply cautioned against “treating [the approval process] like this is some rubber-stamp operation.” On December 3, Judge Leon informed the parties that he expected to hear and consider “well-informed and thoughtful public commentary” in order to determine whether the merger of Aetna and CVS is in the public interest, as the Tunney Act provides. In the meantime, the court issued an Order to Show Cause why he should not issue a “Hold Separate” order—that is, an order requiring CVS to isolate the business acquired from Aetna until he reaches a conclusion on whether the consent judgment is in the public interest.

As we’ve previously reported, Aetna attempted a merger with Humana in 2016—a move that was blocked after trial with the Antitrust Division. Aetna did not appeal.

This week’s hearings are a reminder that federal agency approval under the Hart-Scott-Rodino Act is not necessarily the last step in clearing a merger. While the Tunney Act is typically not a high hurdle, there is precedent for substantial judicial review and even vehement judicial opposition to consent decrees resolving an antitrust dispute with the federal government.

The parties have until December 14 to respond to the Order to Show Cause in writing, and a hearing will follow on December 18 at 3 PM.

On June 11, 2018, the U.S. Supreme Court issued its opinion in China Agritech, Inc. v. Resh, 138 S. Ct. 1800 (2018). The China Agritech decision resolved a circuit split, finding that the statute of limitations for a follow-on class action is not tolled under AmericanPipe. Currently, a related circuit split exists on the question whether class action tolling is available for litigants that file opt-out lawsuits prior to a decision on class certification. Currently, the Second Circuit permits tolling in those circumstances, while the Sixth Circuit does not.

The reasoning of the China Agritech decision suggests that the U.S. Supreme Court would agree with the Sixth Circuit and hold that class action tolling is unavailable for opt-out plaintiffs that file suit prior to a decision on class certification.

Second Circuit Decision in Worldcom

In WorldCom Sec. Litig., 496 F.3d 245 (2d Cir. 2007), the Southern District of New York had held that opt-out plaintiffs that bring suit before class certification is decided could not benefit from American Pipe tolling. As the court of appeals explained, the district court reasoned that “the justification for the doctrine was to avoid the filing of numerous suits by individual class members as a safeguard to preserve their option of proceeding by individual action. With the benefit of American Pipe tolling, class members could wait until after certification was resolved before deciding whether to file their individual suits. According to the district court's reasoning, class members who filed individual suits before the certification decision were not entitled to have their claims tolled, because such individual suits were precisely what the American Pipe tolling doctrine sought to avoid.” Id. at 251.

The Second Circuit disagreed with the district court: while “[t]he district court may be correct that its conception of the American Pipe rule would reduce the number of individual suits filed by class members,” reducing individual suits was a byproduct, not the purpose, of the rule. Rather, “the American Pipe tolling doctrine was created to protect class members from being forced to file individual suits in order to preserve their claims. It was not meant to induce class members to forgo their right to sue individually” Id.

Sixth Circuit Decision in Wyser-Pratt

Wyser-Pratte Mgmt. Co. v. Telxon Corp., 413 F.3d 553 (6th Cir. 2005), involved direct action fraud claims against Telxon and PwC while discovery was underway in class action suits against both defendants. The district court granted a motion to dismiss the fraud claims on statute of limitations grounds, finding that American Pipe tolling did not apply because the direct action plaintiff Wyser-Pratte brought suit before a class certification decision in the class actions against Telxon and PwC.

The Sixth Circuit held that by bringing suit prior to a decision on class certification, Wyser-Pratt forfeited the benefit of class action tolling: “[t]he purposes of American Pipe tolling are not furthered when plaintiffs file independent actions before decision on the issue of class certification, but are when plaintiffs delay until the certification issue has been decided.” Id. at 569. Notably, in reaching its decision the Sixth Circuit relied on the Southern District of New York’s decision in Worldcom that was subsequently reversed by the Second Circuit.

Supreme Court Decision in China Agritech

China Agritech, Inc. v. Resh, 138 S. Ct. 1800 (2018) deals with a related, but not identical issue—the application of American Pipe tolling to successive class actions. On that question, Justice Ginsberg (writing for an eight justice majority, with Justice Sotomayor concurring in the judgment), found that “American Pipe tolls the statute of limitations during the pendency of a putative class action, allowing unnamed class members to join the action individually or file individual claims if the class fails. But American Pipe does not permit the maintenance of a follow-on class action past expiration of the statute of limitations.” Id. at 1804.

Justice Ginsberg’s opinion, like the district court in Worldcom and the Sixth Circuit in Wyser-Pratt, focused on the policy justifications behind American Pipe tolling: “[t]he watchwords of American Pipe are efficiency and economy of litigation, a principal purpose of Rule 23 as well. Extending American Pipe tolling to successive class actions does not serve that purpose. The contrary rule, allowing no tolling for out-of-time class actions, will propel putative class representatives to file suit well within the limitation period and seek certification promptly.” Id. at 1811. The opinion did not mention Worldcom or Wyser-Pratt.

After the China Agritech decision, practitioners in the field have suggested that since China Agritech stresses judicial efficiency as the animating basis for American Pipe tolling, the Court would be likely to side with the Sixth Circuit. That is also suggested by the language of the decision: “American Pipe tolls the statute of limitations during the pendency of a putative class action, allowing unnamed class members to join the action individually or file individual claims if the class fails.” Id. at 1804 (emphasis added).

]]>A Brief Overview of the “New Brandeis” School of Antitrust Lawhttps://www.pbwt.com/antitrust-update-blog/a-brief-overview-of-the-new-brandeis-school-of-antitrust-law/
https://www.pbwt.com/antitrust-update-blog/a-brief-overview-of-the-new-brandeis-school-of-antitrust-law/#respondThu, 08 Nov 2018 00:00:00 +0000https://www.pbwt.com/?post_type=blog-post&p=30074For the past several decades, antitrust law has been focused primarily on consumer harm—a given policy is unlikely to be considered anticompetitive if it results in lower prices for consumers. A student note in a January 2017 edition of the Yale Law Journal titled “Amazon’s Antitrust Paradox,” argues that this focus is too narrow, and that antitrust policy and regulators should be focused on broader measures of competition. Using Amazon as a case study, the author, Lina M. Khan, argues that Amazon should be subject to increasing antitrust scrutiny despite its substantial track record of providing low prices to consumers for a variety of products.

The article’s central argument is that the Chicago School approach to antitrust law that took hold in the 1970s and 1980s—with its focus on efficiency, prices, and consumer welfare—should not have abandoned antitrust law’s earlier concerns with market structure. Khan thinks that we should return to a structure-oriented competition policy:

[T]he undue focus on consumer welfare is misguided. It betrays legislative history, which reveals that Congress passed antitrust laws to promote a host of political economic ends—including our interests as workers, producers, entrepreneurs, and citizens. . . . Antitrust law and competition policy should promote not welfare but competitive markets. By refocusing attention back on process and structure, this approach would be faithful to the legislative history of major antitrust laws. It would also promote actual competition—unlike the present framework, which is overseeing concentrations of power that risk precluding real competition.

Khan further argues that recent studies show that mergers have led to higher prices without any efficiency gains, contrary to the predictions of a Chicago School focused approach. She also argues that by failing to focus on structure, modern antitrust law ignores the interest of consumers in product quality and variety, which are unlikely to flourish in a highly-concentrated (but perhaps lower-priced) market. Citing legislative history, Khan notes that the Sherman Act was concerned not only with consumers, but also with the concentration of economic power itself, and this concern “promotes a variety of aims, including the preservation of open markets, the protection of producers and consumers from monopoly abuse, and the dispersion of political and economic control.”

Although some detractors have referred to Khan’s argument as “hipster” antitrust (see, e.g., Andrea O’Sullivan, “What is ‘Hipster Antitrust?’”, available at https://www.mercatus.org/bridge/commentary/what-hipster-antitrust; Press Release by Senator Orrin Hatch, “Hatch Speaks Again on ‘Hipster Antitrust,’ Delrahim Confirmation”, available at https://www.hatch.senate.gov/public/index.cfm/2017/9/hatch-speaks-again-on-hipster-antitrust-delrahim-confirmation), others have viewed the article as a welcome call for a renewal of the prior school of antitrust theory. This school of thought is sometimes referred to as the “New Brandeis” or “Neo-Brandeis” movement because it, like Justice Brandeis, is concerned with the downsides of bigness and economic concentration. See, e.g., David Dayen, “This Budding Movement Wants to Smash Monopolies”, available at https://www.thenation.com/article/this-budding-movement-wants-to-smash-monopolies/; Robert Levine, “Antitrust law never envisioned massive tech companies like Google”, available at https://www.bostonglobe.com/ideas/2018/06/13/google-hugely-powerful-antitrust-law-job/E1eqrlQ01g11DRM8I9FxwO/story.html.

It is premature to assess whether these ideas will gain traction with the courts, but some policymakers and regulators appear to be paying attention. In July 2018, Federal Trade Commissioner Rohit Chopra hired Khan as an advisor. This past September, the FTC began hearings on “Competition and Consumer Protection in the 21st Century.” Reflecting the seriousness of the challenge posed by the New Brandeis movement to the current antitrust establishment, Tim Muris—chairman of the FTC from 2001 to 2004, and a Chicago School adherent—spent a considerable amount of time in his opening remarks at the first hearing addressing the perceived “populist” agenda of the movement. Attorneys general from twelve states (and the District of Columbia) seemed to echo the sentiments of the New Brandeisians in a comment submitted to the FTC in connection with these hearings, noting that although the FTC Act is a “consumer welfare statute,” with a focus on “price effects that challenged conduct may have on the consumer,” it should also reach “conduct with harmful effects on innovation and quality” and should seek to “protect the competitive process, for the ultimate benefit of consumers.”

At this stage, it is difficult to predict what effects, if any, these arguments may have, but the theory’s concern for market structure and concentration would likely lead to heightened scrutiny of mergers. Khan speaks favorably of the 1968 Horizontal Merger Guidelines and disparagingly of the 1982 Guidelines, which changed the focus of the DOJ’s merger inquiry from market structure to “market power.” The 1982 Guidelines defined market power as the “ability of one or more firms profitably to main prices above competitive levels.” Though the 2010 Guidelines currently in force also consider a merger’s potential impact on innovation when examining market power, the focus is still generally on price effects. A DOJ populated by New Brandeisians may instead emphasize Section 5.3, “Market Concentration,” which prompts analysis of whether a transaction warrants particular scrutiny based on the Herfindahl-Hirschman Index measure of market concentration. We will keep an eye on developments, and continue to provide updates.

]]>In re Asacol: First Circuit Sharply Limits Certification of Antitrust Classes Containing Uninjured Membershttps://www.pbwt.com/antitrust-update-blog/in-re-asacol-first-circuit-sharply-limits-certification-of-antitrust-classes-containing-uninjured-members/
https://www.pbwt.com/antitrust-update-blog/in-re-asacol-first-circuit-sharply-limits-certification-of-antitrust-classes-containing-uninjured-members/#respondMon, 29 Oct 2018 00:00:00 +0000https://www.pbwt.com/?post_type=blog-post&p=30029In a recent decision, the U.S. Court of Appeals for the First Circuit held that Rule 23’s “predominance” requirement barred certification of a class of all indirect purchasers of a prescription drug because the class included members who were uninjured by the alleged anti-competitive activity – they were “brand loyal” and would not have purchased a cheaper generic product even were it available. Asacol makes it more difficult to certify antitrust class actions in the First Circuit and its effects may extend further if the First Circuit’s reasoning is adopted by other circuits.

To read more about the Asacol decision, please click here to access a recent Patterson Belknap alert.

]]>As DOJ Reconsiders Watershed Consent Decrees, Claims of Unlawful “Circuit Dealing” Proceed Against Landmark Theatershttps://www.pbwt.com/antitrust-update-blog/as-doj-reconsiders-watershed-consent-decrees-claims-of-unlawful-circuit-dealing-proceed-against-landmark-theaters/
https://www.pbwt.com/antitrust-update-blog/as-doj-reconsiders-watershed-consent-decrees-claims-of-unlawful-circuit-dealing-proceed-against-landmark-theaters/#respondMon, 08 Oct 2018 00:00:00 +0000https://www.pbwt.com/?post_type=blog-post&p=29914Hollywood and the antitrust laws go way back. Indeed, antitrust suits have resulted not only some of the most significant cases in the evolution of American antitrust law, but many of the most consequential developments in the history of the movie industry. Chief among these is United States v. Paramount Pictures, Inc., 334 U.S. 131 (1948), which held unlawful the then-existing vertical integration of production studios, distributors, and exhibitors (i.e., theaters); it also held various prevailing practices—“block booking” (bundling movie licenses and strong-arming theaters into accepting all of a studio’s movies); “circuit dealing” (obtaining mass licenses for entire theater chains, instead of for individual theaters and films); overbroad “clearances” (selling exclusive exhibition licenses for certain geographical areas); and setting minimum movie-ticket prices—to be impermissibly anticompetitive. By effectively abolishing the so-called “studio system” and requiring the studios to divest themselves of their theater chains, the Paramount case and the resulting consent decrees fundamentally altered the relationships among producers, distributors, and exhibitors, and led to the industry structure that has survived to date.

But in August, citing the “considerable change” in the industry since the Paramount case, the Department of Justice announced that it would revisit the 1948 Paramount Consent Decrees, which bar block booking, circuit dealing, overbroad clearances; and minimum ticket price maintenance. Among other things, the DOJ observed that “none of the Paramount defendants own a significant number of movie theatres” and that “unlike seventy years ago, most metropolitan areas today have more than one movie theatre” which often “have multiple screens showing movies from many different distributors at the same time.” It also cited the “[n]ew technology [that] has created many different distribution and viewing platforms that did not exist when the decrees were entered into,” which permit “today’s consumers [to] view motion pictures on cable and broadcast television, DVDs, and over the Internet through streaming services.” The period for public comment on “whether the Paramount Consent Decrees still are necessary to protect competition in the motion picture industry” ended on October 4, and the DOJ has yet to comment further.

For now, however, the decrees remain in place—and, more to the point, the practices they proscribe continue regularly to crop up in litigation. While perhaps not, like Paramount, a blockbuster, a recent decision—2301 M Cinema LLC v. Silver Cinemas Acquisition Co.—well illustrates several of these core movie-industry antitrust issues.

The plaintiffs in Silver Cinemas are four independent movie theaters in Washington, DC, Denver, and Detroit who want to exhibit “specialty films”—e.g. documentaries, foreign-language films, and “art films”—but allege that they have been stymied by the anticompetitive practices of a large competitor, Landmark Theaters, “the largest specialty film movie theater chain in the country” with 51 specialty film theaters in 22 geographic markets all around the country. On the basis of these advantages of scale, the plaintiffs allege, Landmark is using “circuit dealing” to obtain broad geographical “clearances” in its license agreements with specialty-film distributors, in violation of Section One of the Sherman Act. Plaintiffs also allege that Landmark is monopolizing and attempting to monopolize the specialty-film exhibition market, in violation of Section Two of the Sherman Act, by currently holding monopoly power and using leverage to further exclude competitors from the market.

Landmark moved to dismiss, arguing that the plaintiffs insufficiently alleged actual “circuit dealing” as opposed to permissible “theater-by-theater, city-by-city” clearance agreements; that, in any event, plaintiffs failed to allege concerted action or agreements between Landmark and distributors; and that plaintiffs did not plead “antitrust injury,” only injury to their individual theaters. Landmark also argued that the monopolization and attempted monopoly allegations did not state a claim because they failed to include enough detail about the nature of Landmark’s negotiations and monopoly power. The district court denied the motion in all but one respect—Landmark’s parent company was dismissed without prejudice from the case because the plaintiffs failed to allege any facts connecting it to the actions of its subsidiaries.

First, as to the Section One claims, the court held that the plaintiffs plausibly and adequately alleged that Landmark uses its market power across and within geographical markets to compel distributors to agree to exhibition licenses with substantial “clearances” in geographical areas that serve to cut Landmark’s smaller competitors out of the market, and that the facts alleged supported an inference of actual coercion by threats of retaliation. (The court wryly noted that Landmark itself had alleged substantially similar facts in a 2016 circuit-dealing and monopolization suit of its own against Regal Entertainment Group, arguing at the time that it could not allege more “[w]ithout the benefit of discovery.”) It also held that plaintiffs pleaded an “agreement” because their allegations contained more than “parallel conduct” explicable by unilateral action in response to market forces. Finally, it held that plaintiffs had pleaded “antitrust injury” in the form of, inter alia, “decreased output and revenues for distributors” and “fewer exhibitor choices[,] . . . increased movie prices[,] and decreased theater quality” for consumers.

As to the Section Two claims, the court rejected Landmark’s argument that plaintiffs were required to allege “that it combined its open [i.e. competitive] and closed [i.e. noncompetitive] towns” to increase its leverage when negotiating with distributors, holding that the plaintiffs were not required to plead such specific facts for purposes of a motion to dismiss; their allegation that Landmark “leveraged its dominant position nationwide” was enough. The court also held that Plaintiffs adequately alleged Landmark’s monopoly power; allegations included Landmark’s owning “fifty-one theaters in twenty-two major geographic markets nationwide,” including a number of cities in which it held up to 80% of the market, and substantial barriers to entry.

We’ll continue to follow this case, as well as any developments from the DOJ’s review of the Paramount Consent Decrees.

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Solicitor General, States Weigh In On Apple Supreme Court Casehttps://www.pbwt.com/antitrust-update-blog/solicitor-general-states-weigh-in-on-apple-supreme-court-case/
https://www.pbwt.com/antitrust-update-blog/solicitor-general-states-weigh-in-on-apple-supreme-court-case/#respondThu, 04 Oct 2018 00:00:00 +0000https://www.pbwt.com/?post_type=blog-post&p=29878As the Supreme Court prepares to hear Apple Inc. v. Pepper, a major case involving antitrust standing, interested parties across the political spectrum are weighing in with their ideas of how the case should be resolved. As we previously reported, the Supreme Court decided to review the Ninth Circuit’s decision that because Apple sold iPhone apps directly to consumers, consumers are direct purchasers that have standing to sue Apple for alleged monopolization of the market for iPhone apps. Apple contends that the app developers – not Apple – are the sellers of apps to consumers because the app developers set prices; Apple contends that it sells only distribution services, and sells those services to the app developers, not to consumers.

The Supreme Court granted cert after the Solicitor General filed a brief encouraging the Court to take the case. The SG agreed with Apple that the Ninth Circuit misapplied Illinois Brick and also argued that this issue will grow in importance as commerce continues to expand online. The SG recently filed a brief on the merits reiterating that the Clayton Act “does not authorize damages claims that are premised on a theory of passed-on harm.”

Earlier this week, the Court granted the SG’s motion to participate in oral argument on the side of Apple. The SG cited its history of participating in oral argument in antitrust cases, most recently last term in Ohio v. American Express Co., and highlighted its substantial interest in the correct application of federal antitrust laws.

The SG is not the only governmental entity to present its views on the merits. 31 states, led by Texas and Iowa, filed an amicus brief in support of the purchasers. While the purchasers argue that they have standing under Illinois Brick, the states call on the Court to overrule Illinois Brick. They assert that indirect purchasers have been allowed to sue under state antitrust law for decades without the feared consequences that underlay the Illinois Brick doctrine, such as the concern that defendants could be liable for duplicative recoveries for the same injury. The states contend that Illinois Brick is a relic of a pre-modern era and is out-of-step with modern economic doctrine and the modern marketplace.

The states include what may seem like strange bedfellows: Texas, Mississippi, and South Carolina have joined the brief, as have California, New York, and the District of Columbia. But “red” and “blue” states often are aligned in seeking robust enforcement of antitrust laws. Last year, in Ohio v. American Express Co., states as diverse as California, Massachusetts, New York, Alaska, South Carolina, and Kentucky filed an amicus brief in support of Texas, Ohio, Nebraska, and Tennessee, the petitioners in that case.

The Supreme Court has not yet scheduled argument in the case but we expect argument to take place as early as November, with a decision by next June. We will continue to monitor the case and report on developments.

]]>Supreme Court Grants Apple’s Petition To Take Major Antitrust Standing Casehttps://www.pbwt.com/antitrust-update-blog/supreme-court-grants-apples-petition-to-take-major-antitrust-standing-case/
https://www.pbwt.com/antitrust-update-blog/supreme-court-grants-apples-petition-to-take-major-antitrust-standing-case/#respondMon, 06 Aug 2018 00:00:00 +0000https://www.pbwt.com/?post_type=blog-post&p=29429The Supreme Court has granted certiorari and will hear, next term, an appeal from Ninth Circuit’s decision in In re Apple iPhone Antitrust Litigation, a case we previously reported on. In In re Apple iPhone, the Ninth Circuit held that because Apple sold iPhone apps directly to consumers, consumers are direct purchasers that have standing to sue Apple for alleged monopolization. Review of the decision could have the potential for major implications in the area of antitrust standing.

Background

In In re Apple iPhone, a class of consumer purchasers of iPhone apps alleged that Apple has monopolized the market for iPhone apps. The complaint alleges that Apple charged a 30 percent markup on all apps sold through the app store, and that the app store is the only place where iPhone apps can be sold. In the district court, Apple moved to dismiss the complaint on the ground that the consumers lacked antitrust standing. Apple argued that app developers—not Apple—were the ones selling the apps and that Apple merely collected money and “passed on” the allegedly supracompetitive price charged by the developers. According to Apple, the plaintiffs’ grievance is with the price set by the app developers, not with any action taken by Apple.

The consumers argued that they had standing because they directly purchased apps from Apple, not the app developers. Supporting plaintiffs’ argument were the facts that (1) they paid the full purchase price to Apple; (2) Apple sells the apps directly to customers; and (3) the app developers at no time directly sell the apps to customers or collect payments from customers. The Ninth Circuit agreed, and concluded the plaintiffs had standing.

The Cert Petition and Opposition

Last summer, Apple petitioned the Supreme Court to review the Ninth Circuit’s decision and the plaintiffs opposed. Apple’s cert petition, and the consumers’ opposition, frame the case differently and dispute the policy implications of this case.

Factually, Apple and the consumers take very different views of who the victims are in this case. As framed by Apple, the consumers do not have standing because the consumers allege that Apple charges excessive commissions to the developers, which only indirectly inflates the prices consumers pay. The consumers counter that they are the only ones who paid Apple, so they alone bore the supracompetitive prices and were directly harmed. The consumers highlight their allegations that the developers made no payment to the alleged monopolist, Apple (other than a one-time registration fee).

Apple and the consumers also disagree about the importance of this case. Apple contends that the questions presented in this case are of national importance and that it is critical that the Supreme Court provide guidance on business models involving electronic marketplaces. The consumers, for their part, downplay both the novelty of this case and its importance.

The SG Weighs In and the Supreme Court Grants Certiorari

The Supreme Court called for the views of the Solicitor General and the SG’s brief encouraging the Court to take the case may have been the deciding factor in the Court’s decision to hear the case.

The SG agreed with Apple that the Ninth Circuit misapplied Illinois Brick and that this issue will grow in importance “as commerce continues to move online.” The SG contended that the consumers do not have standing to sue Apple, who is merely alleged to have passed on the prices set by the app developers.

Earlier this summer, the Supreme Court granted Apple’s cert petition. While no grant of certiorari is guaranteed, this grant is not too surprising, as Apple and the SG framed the case as important and applicable to online marketplaces in general. Moreover, the Ninth Circuit recognized that its decision created a circuit split with the Eighth Circuit Ticketmaster case, which held that antitrust claims against the alleged monopolist, Ticketmaster, belonged to the concert venues, not to the consumers who purchased tickets.

The Supreme Court will hear arguments in the case no sooner than November and will issue a decision by next June. The decision figures to add clarity to the Supreme Court’s 40-year-old Illinois Brick standing doctrine, as it applies to online sellers and distributors. We will continue to monitor the case and report on developments.

]]>11th Circuit May Consider Continued Viability of Per Se Standard for Horizontal Market Allocationhttps://www.pbwt.com/antitrust-update-blog/11th-circuit-may-consider-continued-viability-of-per-se-standard-for-horizontal-market-allocation/
https://www.pbwt.com/antitrust-update-blog/11th-circuit-may-consider-continued-viability-of-per-se-standard-for-horizontal-market-allocation/#respondFri, 03 Aug 2018 00:00:00 +0000https://www.pbwt.com/?post_type=blog-post&p=29428We wrote before about a decision by an Alabama federal district court to analyze claims in the Blue Cross Blue Shield multi-district litigation under a per se standard. The court found that a licensing rule allegedly requiring member plans to derive at least two-thirds of their revenue from Blue-branded plans was effectively an “output restriction” which, especially combined with the designation of exclusive service areas among the member plans, constituted a per se Sherman Act violation.

More recently, the same court granted the defendants’ motion to certify that order for interlocutory review, which, the court recognized, is reserved for “truly exceptional cases.” The Blue Cross defendants had sought certification of the question:

Whether territorial restraints or output restrictions, in isolation or in aggregation, that are not the result of a naked, horizontal agreement must be evaluated under the per se rule.

The district court chose instead to certify its own “rephrased, clarified question”:

Whether Topco, Sealy, and Palmer remain viable and require the application of the per se rule to a combination of restraints, involving horizontal market allocation and horizontal output restrictions, agreed to by competitors and potential competitors, where Defendants claim, under BMI, that there are at least arguable procompetitive benefits to the combination?

The district court explained that this question is clearly a “controlling” one under the standard for certification set forth in 28 U.S.C. § 1292(b). It explained, “Candidly, the court and the parties are at a crossroad, and the standard of review ruling will literally direct them as to which way to continue this litigation.”

The court also engaged in a frank discussion of the uncertain state of the law. While noting that it “earnestly believes it ‘got it right’” under Supreme Court precedent, the court acknowledged the significant doubt that has been cast upon the continuing vitality of Topco and Sealy over the years, including in a statement by Judge Bork of the D.C. Circuit that those decisions, “to the extent [they] stand for the proposition that all horizontal restraints are illegal per se . . . must be regarded as effectively overruled.”

Accordingly, the court found a substantial ground for disagreement regarding the state of the law. It explained further that “The stakes in this multidistrict litigation are high. The parties estimate that one out of every three Americans has health coverage through the Blues. The parties have poured millions of dollars and untold hours into this litigation. If the Eleventh Circuit were to disagree with the court’s ruling, finding out sooner (rather than later) would save millions more dollars and, potentially, years of full-scale litigation.”

Following the certification, defendants—represented by noted appellate attorney Paul Clement—filed their petition to the Fifth Circuit for permission to appeal. Plaintiffs opposed, and the appeals court has not yet ruled on the petition.

We will monitor the progress of this appeal, should it be accepted for review.